A part of your proceeds from the IPO will be used for debt repayment. What is the timeline? Rs 530 crore will be used for debt repayment. Will you be a zero debt company?
Ramesh Kannan: We will have a net debt of around Rs 40 crore after the repayment and we also will be saving around Rs 1.8 crore a month.
We have seen negative cash flows and you talked about the negative cash flows from operating activities in the June quarter that has been attributed to rising overheads, fixed costs as well as working capital. What has been the material impact of this on your operations and what will be the impact going forward?
Jairam Paravastu Sampath: This is the first quarter of the year and typically in the first quarter, the business expected is about 16% though the costs remained almost similar to any other quarter and also this is the quarter where we get more and more materials to provide for growth.
In the first quarter, we get more and more materials. We have an order book of Rs 2,200 crore and that needs to be quickly delivered. It is good that we have increased the working capital cycle with inventories coming in so that we can fulfill the orders.
Kannan: In our business, the cycle is always like this. The first quarter will always be less and the last quarter will be high.
There is also increasing competition in the electronic system and design manufacturing industry that could create some pressure on pricing and market and even affect your business, are you well positioned to tackle the competition?
Ramesh Kannan: In my opinion there are enough markets available. Today we can convert all imports of PCB assemblies which are coming from outside. That itself is a market for 10 players like us. I am not expecting any big impact because of competition. Price pressure is a continuous activity but that will not affect any performance.
Do you intend to pursue inorganic growth opportunities via selective strategic acquisitions and a foray into the consumer electric segment? Will you consider alliance partners?
Ramesh Kannan: This will definitely happen because in my opinion, there will be consolidation happening. As a part of that, there will be alliances happening, strategic investments happening and we are also prepared for it but we wanted to go step by step.
There were low margins in FY20 as well as FY21. We have seen those margins improve quite significantly in FY22 and that trend continued into the first quarter of FY23. Should your shareholders get used to this kind of margin expansion?
Jairam Paravastu Sampath: Fundamentally, there were three reasons for the increase in profitability in the FY22. One was that during FY21 we incurred significant costs on account of Covid etc, in terms of freight because of Covid protocols.
The other reason is there has been significant growth of about 67% in FY22. That has given us a better absorption of overheads and also our margins are driven by the nature of the industry and the proportion of each industry. We had reasonably stable profile of different verticals in our business and going forward, based on the order book, we can say that it is similar to what we have had so far in FY22.
Since the order book of Rs 2,200 crore is to be delivered over one-and-a-half years, in terms of its velocity of delivery also, it is growing at 60 odd percent. We think that similar factors would apply and conditions will be similar.
The top 10 customers account for over 60% of the company’s revenue. If you lose one of these customers, will there be an adverse impact? Is the company too over exposed to 10 customers?
Jairam Paravastu Sampath: Yes, while the top 10 account for 60%, going forward, in FY22 and up to about June, we have had more larger customer acquisitions. It is more like equally powerful horses pulling and there are upsides available in our business plan. The open order status is one such indicator.
We think that it may not significantly affect our business prospects in the short run but, of course, we always carefully monitor the performance and the offtake from each customer and we do course corrections. We have a system of review and we make sure that that is not allowed to affect our overall performance because we are present in all the six different sectors. We are a diversified portfolio company.
What is the outlook going forward for the company?
Ramesh Kannan: We are a diversified company and wanted to have the percentage maintained between verticals. We have restructured our company, having heads handling each vertical. I am very certain that the growth plan that we have projected should happen without any difficulty. Up to FY24, we have orders fully covered and thereafter we have started to work. Going forward our long-term plan is to grow at a very steep rate.